Subsidies and tariffs: sweetening the pot
Restrictions on the U.S. sugar market keep domestic sugar prices two or more times higher than world prices. The taxpayer cost of sugar subsidies is expected to be $1.4-billion over the next decade. The Government Accountability Office estimates that the high prices for sugar and products made with sugar caused by federal policies cost consumers $1.9-billion annually.

What is a subsidy?

Subsidies were developed to help a farmer make up money lost between the cost to produce a product and what he could sell it for. For example, if it costs $1 to grow a bushel of corn, and the market will pay only 80 cents, the government makes up the difference and pays the farmer 20 cents plus a little more so he can make a profit.

How it works for sugar

1. Each year, the Agriculture Department lends money to sugar cane processors to operate factories and to pay sugar growers for the cane or beets they deliver to the refineries.
2. In return, processors agree to pay growers set minimum prices.
3. If the market price of sugar rises, processors sell their product and pay back the loan.
4. If the market price falls, processors can forfeit the sugar to the government and not repay the loan.

The role of tariffs

5. To keep from getting stuck with a bunch of unpaid loans and tons of sugar to distribute, the government uses tariffs. Sugar is much cheaper on the world market than in the United States. The government sets quotas on how much foreign sugar can be imported into the country. By keeping out this cheaper sugar, the government keeps sugar prices higher in the United States.

Comparing prices

20.83 cents per pound, U.S. raw sugar price, May 2008

12.23 cents per pound, world raw sugar price, May 2008


Sources: Cato Institute; U.S. Department of Agriculture

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